A positive real interest rate indicates
A) how fast the number of dollars in your savings account is rising over time.
B) how fast the purchasing power of your savings account is rising over time.
C) the number of dollars in your savings account today.
D) the purchasing power of your savings account today.

Question

Quizplus · Accepted Answer

A positive real interest rate indicates that the nominal interest rate (the rate at which your money grows) is higher than the rate of inflation (the rate at which prices are increasing). This means that the purchasing power of your savings account is increasing over time, which is represented by choice B. Choice A is incorrect because the real interest rate takes inflation into account, so it is not simply measuring the growth of the number of dollars. Choice C and D are also incorrect because they only represent the current amount of money and do not take into account how the value of that money changes over time.

A Positive Real Interest Rate Indicates